It’s Thursday, which means it’s Eddie. He blogs.here. He promised this week’s edition is “particularly mean”. I’ll let you be the judge of that.
If my count is correct, this is personal finance groupthink assassination number 6.
If I had a nickel for every time I read an article or post from a personal finance blogger, even ones that have a large readership but whose authors are not particularly well read, about the sinister nature of banks, I could not buy anything of value since I stopped reading virtually all PF blogs a long time ago. However, the propensity for PF bloggers to vilify banks is astounding as it is myopic.
A bank is a business. More specifically, it is a financial intermediary. Banks connect net lenders (those who have money via deposits and investable assets etc) with net debtors (those who want loans, mortgages etc) and receive the spread. They greatly reduce risk on the part of both parties by performing due diligence on each stakeholder to a transaction and facilitating its completion. Without banks and other enterprises which perform similar functions, deals would have to be negotiated privately between parties. The difficulty and costs of such an arrangement would be exorbitant. Imagine going to your rich neighbor and negotiating a $400,000 loan.
The conventional wisdom in the PF world is that a bank is a malevolent spectre that haunts the populace and tries to rob the unsuspecting layman of their hard earned money. High MERs, ATM charges, and chequing account fees are the tricks in the devil’s bag to deprive the innocent of their wealth. Luckily, enlightened PF bloggers are on a crusade to deliver us from evil of institutional banking.
Hyperbole and sanctimony aside, banks are terribly misjudged by the masses. Banks merely try to guide their customers to higher margin products, which is not so extraordinary compared to other businesses. There are many other enterprises that try to upsell you on their goods or services. Butchers try to entice you with a higher quality steak, telecom companies recommend more robust communications plans, and tradesman are always looking to expand the scope of their work. Nothing wrong there. Banks do not have your best interests at heart, but neither does your hairdresser or banker. Welcome to the free market. Some products that banks offer more economic value and higher margins to the bank rather than the customer, but the same could be said for Apple. Margins on Apple products are enormous but no one complains about that, yet a $6 per month chequing account is anathema (for the record, I despise Apple and everything that company stand for).
One of the most important facts that people need to realize is that, fees aside, the interests of the bank and the customer are aligned. They may not be perfectly correlated, as you care more about your money than they do. In a general sense, they make and lose money when you do. For example, a bank can provide financing for a business venture or a mortgage. If you are successful and repay it, it helps you grow your business or provides a stable place to live. You make money or receive other benefits, and they receive their cut. If your business fails or you default on your mortgage, they lose money and incur the administrative burden of getting a portion of their money back. This is an arduous process for a lender.
I humbly suggest that you view your bank as a partner and not an adversary. Yes, they will try to direct you to more robust services, but they can more importantly act as a gateway to accessing the capital required to start a business, obtain a mortgage, or upgrade your education. The latter is infinitely more important than the former. Banks want to lend you money and have a vested interest in seeing you succeed. Maximize the value of this relationship by seeing the forest through the trees. ATM fees and MERs are the cost of doing business. Acknowledge it, move on, and focus on the more important aspects of the relationship and the potential it contains.
Disclosure: I do not work for a bank nor do I have any as clients.
PS I suspect PF bloggers criticize banks because they do not have the knowledge or sophistication to write about anything else. Banks are an easy target; when in doubt or at a loss for material, criticize the banking industry.